VYSTAR CORPORATION OVERVIEW
This analysis of our results of operations should be read in conjunction with the accompanying financial statements. This Report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. Statements that are predictive in nature and that depend upon or refer to future events or conditions are forward-looking statements. Although we believe that these statements are based upon reasonable expectations, we can give no assurance that projections will be achieved. Please refer to the discussion of forward-looking statements included in Part I of this Report. About RxAir RxAir promotes a healthy lifestyle through the use of its innovative, patented ViraTech air purification technology, thereby improving the quality of life of each and every customer. Independently tested by theU.S. Environmental Protection Agency ("EPA ") andU.S. Food and Drug Administration ("FDA") certified laboratories, the RxAir has been proven to destroy greater than 99% of bacteria and viruses and reduce concentrations of odors and volatile organic compounds ("VOCs"). The RxAir uses high-intensity germicidal UV lamps that destroy bacteria and viruses instead of just trapping them, setting it apart from ordinary air filtration units. RxAir® and ViraTech® are registered trademarks ofVystar Corp. For more information, visit http://www.RxAir.com. The Company's RxAir product line use 48 inches of high-intensity germicidal UV lamps that destroy bacteria, viruses and other germs instead of just trapping them, setting it apart from ordinary air filtration units. RxAir is one of the few UV air purifiers that have been proven in independentEPA - and FDA- certified testing laboratories to destroy on the first pass 99.6% of harmful airborne viruses and bacteria. In addition to inactivating airborne viruses that cause influenza (flu) and colds, RxAir's device disarms the airborne pathogens that cause MRSA (staph), strep (whooping cough), tuberculosis (TB), measles, pneumonia and a myriad of other antibiotic-resistant and viral infections.
The RxAir product line includes:
? RxAir™ Residential Filterless Air Purifier ? RX400 ™ FDA cleared Class II Filterless Air Purifier ? RX3000™ Commercial FDA cleared Class II Air Purifier
Vystar produces the RxAir product line with a new world-class manufacturer and an expertU.S. engineer with a full understanding of the RxAir technology.Vystar sells RxAir residential and commercial units through multiple distributors and the Company's website. Once distribution channels are firmly established,Vystar expects the air purification products will produce margins of approximately 70%.
Vystar's Board of Directors have approved preliminary plans to spin off the RxAir,Vytex andFEC product lines into a separate legal entity whichVystar intends to take public.Vystar anticipates retaining approximately 10% of the shares in the new entity and will distribute the remaining ownership percentage toVystar shareholders. This plan is expected to be executed in late 2022.
About Rotmans Rotmans, one of the largest independent furniture retailers in theU.S. , encompassing over 170,000 square feet inWorcester, Mass. , and employing approximately 50 people, was founded and has been under the leadership of the Rotman family for the past 50 years. Rotmans is expected to add approximately$15 million annually toVystar's top line revenue and enableVystar to capitalize on the infrastructure already in place for accounting, retail sales facilities and staff, customer service, warehousing, and delivery. Significant marketing and advertising opportunities are available for all ofVystar's brands to Rotmans' thousands of existing customers.Steven Rotman and a group of dedicated employees provide continuity of management and customer-focused values for the Company. 33 AboutVytex Vytex is a multi-patented latex raw material in which the allergy causing proteins are reduced to a level that falls at or below detection based on ASTM approved test methods.Vytex has been available as a raw material commercially for ten years and through that time has a dedicated group of manufacturers who use it in end products such as electrical gloves, condoms, adhesives, etc. Ironically, most useVytex as it's better for their manufacturing process as an easier to use raw material and not for protein properties. As of mid-2020Vystar and theIndian Rubber Manufacturers Research Association's ("IRMRA") have been actively collaborating to develop viscoelastic deproteinized natural rubber (DPNR) variants having properties for expanding applications in specific new arenas such as green tires, biodegradable and other unique bioelastoplast product lines that desire a new approach. Additionally, this research, while slowed by the COVID-19 pandemic, has also shown attributes with extra low ammonia offerings that are desired and now sampled. Towards the end of 2020,Vystar entered into a Market Development and Distribution Agreement withCorrie MacColl, Ltd. ("CMC Global") to produce, develop and manage theVytex product and supply lines. This agreement will allowVystar to expand the market for its Natural Rubber Latex products and has garnered much attention across a broad range of industries including liquidVytex as well as the newly developed dry rubberVytex . As of the date of this report, CMC Global has provided numerous opportunities that are in a trial basis or moving towards manufacturing trials in industries that use a significant amount of natural rubber latex, henceVytex . AdditionallyVystar now has a testing supply ofVytex dry rubber for larger trials. The success of early trials and the shipping crisis has led to broader spectrum of manufacturers combining the potential ofCameroon production with strategically placed contract manufactures based on geographical needs. AlsoVystar research has shown great strides in specializing liquidVytex (ultra low protein latex, ULPL) to meet the immediate needs of customers such as low or no nitrosamine and others (discussed in the presentation below available in the pdf) and additional patents have been proposed to cover these findings. Research into dry rubber continues at a moderate pace as tire companies seek out alternatives to synthetics.Vytex researcher Dr.Ranjit Matthan and CMC Global DirectorJohn Heath presented atThe International Latex Conference which was held virtuallyJuly 20 to 22, 2021 and offered a plenary session entitled "Innovations and Sustainability in Natural Rubber Latex - The New Paradigm." The presentation discussed the dramatic effect the COVID-19 pandemic has had on the natural rubber supply chain, and how the industry is reacting the new economic circumstances; including strategy and policy shifts in supply chain management and restoring greater geographic diversification of latex processing and product manufacturing. The R&D association with IRMRA promises quicker laboratory and field-based testing and evaluations downstream. AtVystar , the recalibrated sustainability programme (FSC, nitrosamines & ammonia free, ultralow proteins, no SVHC and green carbon neutrality) emphasize certifications with Corrie MacColl market reach facilitating faster rollouts. Nontraditional/non Hevea brasiliensis based production efforts are likely to continue to face new penetration and high cost-benefit acceptance challenges in this decade. A PDF of the full presentation is available on vytex.com. Additionally, inAugust 2021 ,Dr. Matthan presented new data to theAutomotive Tyre Manufacturers' Association includingVytex dry rubber. A follow up paper has been completed byDr Matthan ,John Heath andWilliam Doyle and will run
inRubber World in early 2023. In Halcyon Agri (owner of CMC Global), 2020 Corporate Report: "Our group-wide innovation capabilities have enabled us to engage in innovative commercial partnerships. Corrie MacColl is collaborating withVystar Corporation to transform ourCameroon plantation output into ultra-pure latex with stronger molecular bond that offers enhanced strength, durability and flexibility in the end products. This is achieved by removing non-rubber components and 99.85% of the proteins." CMC Global continues to work with the facility atCameroon to produceVytex at their owned processing plant. AboutFEC Vystar is looking to Fluid Energy as it moves forward in its quest for a cleaner and safer environment. The Company is planning to improve its air purifying by using the ultrasonic technology of Fluid Energy and combining it with its leading UV-C technology. The designs and prototypes are in development. This ultrasonic technology is applied into water products with the same goal. We have working prototypes for our water product targets that have tested beyond expectation for bacterial killing and flow metering. We will begin soon evaluating our ability to eradicate hard water pollution that fouls pools, fountains, and pumps. These products will move us toward living more safely
and cleanly in our environment. 34
Impact of COVID-19 on Our Business
The COVID-19 pandemic has resulted in significant economic disruption and adversely impacted our business. It has caused, among other things, interruptions in our supply chains and suppliers, including potential problems with inventory availability and the potential result of the volatility or higher cost of product and international freight due to the high demand of products and low supply for an unpredictable period of time. In addition, discretionary consumer spending has been negatively affected by rising inflation, including fuel costs and interest rates. At this time, we cannot reasonably estimate the duration of the pandemic and its influence on consumers and our business. RESULTS OF OPERATIONS Comparison of the Three Months EndedJune 30, 2022 with the Three Months EndedJune 30, 2021 Three Months Ended June 30, 2022 2021 $ Change % Change CONSOLIDATED Revenue$ 3,196,033 $ 6,216,004 $ (3,019,971 ) -48.6 % Cost of revenue 1,467,964 2,567,075 (1,099,111 ) -42.8 % Gross profit 1,728,069 3,648,929 (1,920,860 ) -52.6 % Operating expenses: Salaries, wages and benefits 785,931 1,575,649
(789,718 ) -50.1 % Share-based compensation 338,857 211,423 127,434 60.3 % Agent fees 327,007 1,077,567 (750,560 ) -69.7 % Professional fees 133,472 198,778 (65,306 ) -32.9 % Advertising 314,084 543,475 (229,391 ) -42.2 % Rent 177,184 319,616 (142,432 ) -44.6 % Service charges 85,072 84,499 573 0.7 %
Depreciation and amortization 150,580 192,372 (41,792 ) -21.7 % Other operating 507,682 881,072
(373,390 ) -42.4 %
Total operating expenses 2,819,869 5,084,451
(2,264,582 ) -44.5 %
Loss from operations (1,091,800 ) (1,435,522 ) 343,722 -23.9 % Other income (expense): Interest expense (207,177 ) (177,483 ) (29,694 ) 16.7 % Change in fair value of derivative liabilities 1,463,000 215,800 1,247,200 577.9 % Gain on settlement of debt, net 230,820 1,428,291 (1,197,471 ) -83.8 % Other income, net 33,752 42,177 (8,425 ) -20.0 % Total other income, net 1,520,395 1,508,785 11,610 0.8 % Net income 428,595 73,263 355,332 485.0 % Net (income) loss attributable to noncontrolling interest 238,084 (209,810 )
447,894 -213.5 %
Net income (loss) attributable to Vystar$ 666,679 $ (136,547 ) $ 803,226 -588.2 % 35 Revenues
Revenues for the three months endedJune 30, 2022 and 2021 were$3,196,033 and$6,216,004 , respectively, for an decrease of$3,019,971 or 48.6%. The decrease in revenues was due to the success of the high impact closing to remodel sale at Rotmans in 2021 and the reduction in discretionary consumer spending due to rising inflation in 2022.
The Company reported a significant decrease in gross profit to
The cost of revenue for the three months ended
Operating Expenses The Company's operating expenses consist primarily of compensation and support costs for management and administrative staff, and for other general and administrative costs, including professional fees related to accounting, finance, and legal services as well as advertising, rent and other operating expenses. The Company's operating expenses were$2,819,869 and$5,084,451 for the three months endedJune 30, 2022 and 2022 and 2021, respectively, a decrease of$2,264,582 or 44.5%. The decrease was due in part to reduced revenues and the closing of a second warehouse occupied by Rotmans untilOctober 2021 . Other Income (Expense) Other income (expense) for the three months endedJune 30, 2022 was$1,520,395 which consisted of interest expense of ($207,177 ), change in fair value of derivative liabilities of$1,463,000 , gain on settlement of debt, net of$230,820 and other income of$33,752 . This compares to other income (expense) of$1,508,785 for the three months endedJune 30, 2021 , which consisted of interest expense of$177,483 , change in fair value of derivative liabilities of ($215,800 ), gain on settlement of debt, net of$1,428,291 and other income of$42,177 . Included in gain on settlement of debt, net is PPP loan forgiveness of$1,402,900 . Net Income Net income was$428,595 and$73,263 for the three months endedJune 30, 2022 and 2021, respectively, an increase of$355,332 or 485%. Net income in the quarter endedJune 30, 2022 versus net income in the same period in 2021 was due to the change in fair value of derivative liabilities in 2022, while the comparative period was due to PPP loan forgiveness of$1,402,900 and increased sales and margins from the operations of a high impact closing to remodel sale at Rotmans. 36 RESULTS OF OPERATIONS Comparison of the Six Months EndedJune 30, 2022 with the Six Months EndedJune 30, 2021 Six Months Ended June 30, 2022 2021 $ Change % Change CONSOLIDATED Revenue$ 7,035,291 $ 19,084,123 $ (12,048,832 ) -63.1 % Cost of revenue 3,128,238 8,643,915 (5,515,677 ) -63.8 % Gross profit 3,907,053 10,440,208 (6,533,155 ) -62.6 % Operating expenses: Salaries, wages and benefits 1,694,413 3,524,788 (1,830,375 ) -51.9 % Share-based compensation 476,805 416,119 60,686 14.6 % Agent fees 745,186 2,329,440 (1,584,254 ) -68.0 % Professional fees 322,875 218,961 103,914 47.5 % Advertising 607,572 1,408,653 (801,081 ) -56.9 % Rent 360,911 636,231 (275,320 ) -43.3 % Service charges 192,244 309,015 (116,771 ) -37.8 % Depreciation and amortization 301,160 384,381 (83,221 ) -21.7 % Other operating 1,163,296 1,677,485 (514,189 ) -30.7 % Total operating expenses 5,864,462 10,905,073 (5,040,611 ) -46.2 % Loss from operations (1,957,409 ) (464,865 ) (1,492,544 ) 321.1 % Other income (expense): Interest expense (386,486 ) (353,330 ) (33,156 ) 9.4 % Change in fair value of derivative liabilities 1,520,000 86,800 1,433,200 1651.2 % Gain on settlement of debt, net 230,820 2,675,926
(2,445,106 ) -91.4 % Other income, net 67,704 99,924 (32,220 ) -32.2 % Total other income, net 1,432,038 2,509,320 (1,077,282 ) -42.9 % Net income (loss) (525,371 ) 2,044,455 (2,569,826 ) -125.7 % Net (income) loss attributable to noncontrolling interest 417,696 (1,262,875 )
1,680,571 -133.1 %
Net income (loss) attributable to Vystar$ (107,675 ) $ 781,580 $ (889,255 ) -113.8 % Revenues Revenues for the six months endedJune 30, 2022 and 2021 were$7,035,291 and$19,084,123 , respectively, for a decrease of$12,048,832 or 63.1%. The decrease in revenues was due to the success of the high impact closing to remodel sale at Rotmans in 2021 and the reduction in discretionary consumer spending due to rising inflation in 2022. The Company reported a significant decrease in gross profit to$3,907,053 for the six-month period endedJune 30, 2022 compared to gross profit of$10,440,208 for the six-month period endedJune 30, 2021 , a decrease of$6,533,155 or 62.6%. The decrease in gross profit is consistent with the decrease in revenues.
The cost of revenue for the six months ended
37 Operating Expenses The Company's operating expenses consist primarily of compensation and support costs for management and administrative staff, and for other general and administrative costs, including professional fees related to accounting, finance, and legal services as well as advertising, rent and other operating expenses. The Company's operating expenses were$5,864,462 and$10,905,073 for the six months endedJune 30, 2022 and 2021, respectively, a decrease of$5,040,611 or 46.2%. The decrease was due in part to reduced revenues and the closing of a second warehouse occupied by Rotmans untilOctober 2021 . Other Income (Expense) Other income (expense) for the six months endedJune 30, 2022 was$1,432,038 which consisted of interest expense of ($386,486 ), change in fair value of derivative liabilities of$1,520,000 , gain on settlement of debt, net of$230,820 and other income of$67,704 . This compares to other income (expense) of$2,509,320 for the six months endedJune 30, 2021 , which consisted of interest expense of ($353,330 ), change in fair value of derivative liabilities of$86,800 , gain on settlement of debt, net of$2,675,926 and other income of$99,924 . Included in gain on settlement of debt, net is PPP loan forgiveness of$2,805,800 . Net Income (Loss) Net income (loss) was ($525,371 ) and$2,044,455 for the six months endedJune 30, 2022 and 2021, respectively, a decrease of$2,569,826 or 125.7%. Net loss in the six months endedJune 30, 2022 versus net income in the same period in 2021 was due to PPP loan forgiveness of$2,805,800 and increased sales and margins from the operations of a high impact closing to remodel sale at Rotmans in 2021. The net loss in 2022 was significantly reduced by the change in fair value of derivative liabilities of$1,520,000 .
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial statements are prepared using the accrual method of accounting in accordance withU.S. GAAP and have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. However, we have incurred significant losses and experienced negative cash flow since inception. AtJune 30, 2022 , the Company had cash of$70,023 and a deficit in working capital of approximately$8.8 million . Further, atJune 30, 2022 , the accumulated deficit amounted to approximately$51.5 million . We use working capital to finance our ongoing operations, and since those operations do not currently cover all of our operating costs, managing working capital is essential to our Company's future success. Because of this history of losses and financial condition, there is substantial doubt about the Company's ability to continue as a going concern.
A successful transition to profitable operations is dependent upon obtaining sufficient financing to fund the Company's planned expenses and achieving a level of revenue adequate to support the Company's cost structure.
Management plans to finance future operations using cash on hand, as well as increased revenue from RxAir air purifier sales andVytex license fees. The Company will also raise capital with common stock subscription issuances. The current agreement with a national sales event company has allowed Rotmans to meet its financial obligations and provided the Company flexibility and time needed to develop a new retail furniture sale model. There can be no assurances that we will be able to achieve projected levels of revenue in 2022 and beyond. If we are not able to achieve projected revenue and obtain alternate additional financing of equity or debt, we would need to significantly curtail or reorient operations during 2022, which could have a material adverse effect on our ability to achieve our business objectives, and as a result, may require the Company to file bankruptcy or cease operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts classified as liabilities that might be necessary should the Company be forced to take any such actions. Our future expenditures will depend on numerous factors, including: the rate at which we can introduce RxAir products and license Vytex NRL raw material and the foam cores made fromVytex to manufacturers and subsequently retailers; the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, along with market acceptance of our products, and services and competing technological developments. As we expand our activities and operations, our cash requirements are expected to increase at a rate consistent with revenue growth after we achieve sustained revenue generation. 38 Sources and Uses of Cash
Net cash used in operating activities was$507,409 for the six months endedJune 30, 2022 as compared to net cash used in operating activities of$2,281,421 for the six months endedJune 30, 2021 . During the six months endedJune 30, 2022 , cash used in operations was primarily due to the net loss offset by the decrease of inventories and other receivables, and non-cash related add-back of share-based compensation expense, depreciation, amortization and change in fair value of derivative liabilities.
The Company had no cash used in investing activities during the six months ended
Net cash provided by financing activities was$426,257 during the six months endedJune 30, 2022 , as compared to cash provided of$1,844,507 during the six months endedJune 30, 2021 . During the six months endedJune 30, 2022 , cash was provided by related party term debt and advances of$569,820 which was offset by the repayment of finance lease obligations of$81,063 and repayment of related party debt of$62,500 . During the six months endedJune 30, 2021 , cash was provided by PPP loan proceeds of$1,402,900 , related party term debt in the amount of$528,039 offset by the repayment of finance lease obligations of$86,432 .
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that may be reasonably likely to have a current or future material effect on our financial condition, liquidity, or results of operations.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Our Management's Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; product development, introduction and acceptance; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with theSecurities and Exchange Commission . Although the forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.
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